Ireland's banks need to "face up to reality" and take their losses on property loans now to avoid dragging the economy into a lost decade like Japan, the Financial Regulator said.
Matthew Elderfield, who took over in January as the head of financial regulation, has told Allied Irish Banks and Bank of Ireland to raise about €10 billion by the end of year to meet new capital requirements and create a buffer against losses as loans turn bad.
"Face up to the pain rather than the Japanese model, where it's drawn out and it can inhibit growth," Mr Elderfield said in an interview in his Dublin office. "You want to take decisive action."
Mr Elderfield's new capital levels are aimed at strengthening lenders after a real-estate slump and credit freeze brought Ireland's banking system close to collapse. He said he's sticking to the targets even as the fallout from Europe's growing fiscal crisis affects funding. Minister for Finance Brian Lenihan said the government will aid the banks if they can't raise the money alone.
"We are going to get there one way or other," Mr Elderfield, a former head of regulation in Bermuda, said. "The capital will be on track irrespective of the market situation."
Shares in Bank of Ireland plunged 14 per cent to 77 cents in Dublin today, while Allied Irish dropped 8.7 per cent to €1.04. Both banks later clawed back some of the losses, with Bank of Ireland trading off 7.1 per cent at 12.30pm, while AIB was down 3.3 per cent.
Stocks across Europe declined as the region's leaders struggled to contain the debt crisis.
Bloomberg